The Department of Trade, Industry and Competition (“DTIC”) has published the Companies Amendment Bill, 2021 (the “Bill”) for public comment. This follows publication, in September 2018, of an earlier version of the Bill in the form of the Companies Amendment Bill, 2018 (“2018 Bill”), for public comment. Subsequently and as a result of consideration of the public representations and consultations with affected stakeholders, changes were made to the original 2018 Bill, resulting in the publication of the Bill.
Interested parties may submit comments to the DTIC by 31 October 2021.
The Bill seeks to make amendments to the Companies Act No. 71 of 2008 (the “Companies Act”), the reasons listed by the DTIC for these amendments are: to overcome difficulties, based on the experience of practitioners, identified since the implementation of the Companies Act and the Companies’ Regulations as from May 2011; to tackle disclosure of wage differentials in companies; to enhance transparency in ownership of companies’ shares and financial records; and, to align the Companies Act with modern international corporate trends.
The noteworthy changes deal with matters such as remuneration; filing of financial statements (with annual return filings) and registers; access to company records by members of the public; financial assistance between a parent and subsidiary; social and ethics committees (“SECs”); reporting of remuneration within companies; and auditors, to name a few.
The following are the noteworthy amendments:-
Section 1 – Definitions
A definition of “true owner” has been added. It is defined as a natural person who would in all the circumstances be considered to be the ultimate and true owner of the relevant securities. This definition has been added in light of the newly added provisions to allow for the establishment of the identity of true owners of companies (discussed below in respect of section 56).
Section 16(9) – Effective Date of Amendment of an MOI
Section 16(9), currently provides that the amendment to the company’s MOI would take effect on (a) the date set out in the amended registration certificate issued by the CIPC in the case of an amendment that changes the name of the company, or (b) in any other case, the date on which the Notice of Amendment is filed or the date, if any, set out in the Notice of Amendment.
This led to debate in the past about whether the amendment of a company’s MOI had to be accepted by the CIPC. In terms of the Bill, the existing subsection 9 (b) will be replaced with the effect that the amendment under sub-section (b) will take effect (i) 10 business days after receipt of the Notice of Amendment by the Commission unless endorsed or rejected with reasons by the CIPC prior to the expiry of the 10 business days period; or the date, if any, set out in the Notice of Amendment, provided that such date shall not be a date prior to expiry of the beforementioned 10 business days.
These time periods will have to be taken into account in provisions in commercial agreements, such as conditions precedent, where an amendment or a replacement of an MOI is required in a transaction.
Section 25 and 26 – Location of and Access to Company Records
An amendment to section 26 will allow persons who are not shareholders of the company (previously only holders of beneficial interests had this entitlement) to inspect and copy that company’s MOI and rules, the records of directors, annual financial statements, securities register and the register of the disclosure of beneficial interests of the company (this register is a new addition in section 56(7)(a)). A fee is still to be applicable and the requirement to allow persons to inspect and copy information will not apply to private companies, personal liability and non-profit companies that fall below a certain threshold.
In the past this right of access (for members other than interest holders) was limited to the securities register and the register of directors only.
It is proposed that the offence arising from an unreasonable refusal to grant access to such records under this section is to be extended to a director or prescribed officer of the company, in addition to the company itself, unless such person can show that they have taken all reasonable steps to secure the company’s compliance with the requirements regarding requests for access (contemplated in sections 26 and 31).
An insertion to section 25 has been proposed such that the notice filed by a company, setting out the locations at which these particular records are kept, must be published by CIPC as prescribed.
Section 30 – Annual Financial Statements
The section is amended in that where remuneration and benefits are received by a director or prescribed officer of the company, that director or prescribed officer must be named in the annual financial statements – this requirement is limited to companies that are required to have their annual financial statements audited.
The Bill proposes the insertion of a new section 30A, imposing the duty on public and state-owned companies to prepare and present a directors’ remuneration policy and remuneration report, and setting out the manner of compiling the report. The section further provides that the implementation report must be presented, and the required approval must be obtained, at the company’s annual general meeting and sets out the consequences to follow where the report fails to receive the required approval at the annual general meeting.
In terms of this section a public company or state-owned company must prepare and present the remuneration policy for directors and prescribed officers for approval by ordinary resolution, at the annual general meeting.
The section further lists the content to be contained in the remuneration report (of which the policy forms part). The remuneration report must be approved by the board and presented for approval by ordinary resolution at the annual general meeting.
Changes to the remuneration policy must also be approved by ordinary resolution.
Section 33 – Annual Return
Currently, in terms of section 33(1)(a) when filing an annual return, only a company which is required to have its annual financial statements audited in terms of section 30(2) or the regulations contemplated in section 30(7) must include in that return a copy of its annual financial statement.
In terms of the amendment every company with a public interest score that exceeds the limit set out in the Companies Act would be required to include a copy of its annual financial statements – audited or not.
Furthermore, the proposed amendment to the section introduces a new subsection subparagraph (aA) which provides that the filing of an annual return must include a copy of the company’s securities register as required in terms of section 50 and the register of the disclosure of beneficial interest as required in section 56.
The CIPC is then required (under the newly added sub-section 1A) to make the annual return available to any person.
Section 38A – Validation of Irregular Creation, Allotment or Issuing of Shares
This new section would empower a court to validate the irregular creation, allotment or issue of shares by a company, provided that the court is satisfied that it is just and equitable to do so.
The current section 38 deals only with issues exceeding authorised capital – the introduction of the word ‘irregular’ potentially broadens the scope to include other non-complying issues of shares, for example an issue of shares that does not comply with section 40 (i.e. shares are issued not for adequate consideration). It is not clear in the proposed amendment what would constitute irregular circumstances.
The application to court can be brought by the company or by any interested person.
The current section 38(2) still provides that if an issuance exceeds the authorised share capital, this can be cured retrospectively by a shareholder resolution without approaching the court.
Section 40 – Consideration for Shares
This section deals with an exception to the general principle that shares can only be issued once they have been fully paid.
Currently this exception required that these shares be transferred to a third party to be held “in trust” until paid. There was uncertainty over this term “in trust” – did it mean a trust as envisaged under the Trust Property Control Act, in trust akin to trust monies held say by an attorney or an amount in escrow.
The amendment provides that partly paid shares will be transferred to a stakeholder (previously referred to as a third party in the Companies Act), being a trusted third party who has no interest in the company or the subscribing party who may be in the form of an attorney. notary public or escrow agent, and held in terms of a stakeholder agreement between the stakeholder and the company (under the Companies Act it was to be held “in trust”, in terms of “a trust agreement”), until fully paid.
Section 45 – Financial Assistance
The heading of the section has been changed from “Loans or other financial assistance to directors” to “Financial Assistance”. The previous heading was misleading as the section does not only deal with financial assistance to directors, but also to and between related parties, such as within groups of companies.
A new subsection (2A) has been inserted, which seeks to exempt a company from the requirements applicable to financial assistance if it is given by a company to its subsidiaries. This relaxation has not been extended to financial assistance given by a subsidiary to its holding company.
The company can still set requirements in this regard in its MOI as subsection (4) has not been amended [and it reads:- In addition to satisfying the requirements of subsection (3), the board must ensure that any conditions or restrictions respecting the granting of financial assistance set out in the company’s Memorandum of Incorporation have been satisfied.]
Section 48 – Company or Subsidiary Acquiring Company’s Shares
Subsection (8) currently provides that a decision by the board of a company to acquire a number of its own shares (a) must be approved by special resolution in certain instances and (b) will be subject to other requirements if it constitutes an acquisition by the company of more than 5% of the issued shares of any particular class of the company’s shares. Subsection (b) is to be replaced such that a special resolution will not be required when a company is implementing a share buy-back by means of an offer made pro-rata to all shareholders including where directors, prescribed officers or person/s related to a director or prescribed officer of the company holds shares which are the subject of the offer and will also not be required in respect of transactions effected on a recognised stock exchange.
Section 56 – Beneficial Interest
In terms of this section, except to the extent that a company’s MOI provides otherwise, the company’s issued securities may be held by, and registered in the name of, one person for the beneficial interest of another person.
Amendments to this section provide for the establishment and maintaining of a register of disclosure by the company of beneficial interests and imposes an obligation on the company (previously only public companies had certain disclosure obligations), where the identity of persons who hold a beneficial interest, including the true owner, is unknown, to request from the registered security holder each quarter to provide details of beneficial interest holders.
Subsection (2) sets out the criteria for when a person is regarded to have a beneficial interest in a public company’s securities. In terms of the proposed amendments this criteria is extended to any company and thus the criteria in subsection (2) will be used to determine whether a person is regarded to have a beneficial interest in, not only public companies, but in any company’s securities. In addition, the amendments provide that true owners will be regarded to have such interest.
The duty in subsection (7) to establish and maintain a register of the disclosures and to publish in its annual financial statements a list of the persons who hold beneficial interests (of persons who in aggregate, alone or together, hold beneficial interests amounting to 5% or more of the issued share capital), would no longer be applicable to a regulated company only, but to any company.
Section 61 – Shareholder Meetings
In terms of proposed amendments to subsection (8), the social and ethics report and the remuneration report will be added to the documentation which must be presented at the meeting of shareholders of public companies. The proposed section 30A requires that the director’s remuneration policy for directors and prescribed officers must be presented and approved at the AGM of a public or state-owned company.
In addition, the appointment of the SEC will now also take place at the annual general meeting of a public company.
Section 72 – Board Committees
Amendments proposed to section 72 relate to the SEC and include: a procedure to exempt certain companies from the requirement to establish an SEC through an application to the Companies Tribunal; and instances where the SEC is not required. The Bill provides for the minimum qualification requirements for members of the SEC; the composition of the SECs; the mechanism for the appointment of the SEC; clarification on the status and requirements of the SEC report; consequences of failing to achieve the approval of shareholders and the process to be followed, which includes a requirement that the SEC must engage with shareholders who voted against the report.
Section 90(1A) – Appointment of Auditor
The proposed amendments to section 90 clarifies when a company which is required to have annual financial statements audited, is also required to appoint an auditor.
The criteria for appointing an auditor would change such that a company that is required only in terms of its MOI to have its annual financial statements audited as contemplated in sections 34 (2) and 84 (1)(c)(ii), must now appoint an auditor at a shareholder’s meeting.
Furthermore, subsection 90(2)(b)(v) would be amended so that the period of five years is reduced to two years. Therefore a person appointed as an auditor must not have been, amongst others, the company’s accountant/bookkeeper, company secretary, director or prescribed officer etc., in the past two years.
[Section 95 – Application and interpretation of Chapter 4 of the Companies Act
The amendment of section 95 provides that the employee share scheme may include, in addition to the issue of shares or grant of options for shares, the purchase of shares in the company.]
Section 118(1)(c)(i) – Application of Takeover Regulations
Section 118 of the Companies Act deals with the jurisdiction of the Takeover Regulation Panel in respect of private companies.
Currently a company is a regulated company where its issued securities have been transferred, other than by transfer between or among related or inter-related persons, within the period of twenty four months immediately before the date of a particular affected transaction or offer exceeds 10% of the issued securities of a private company.
The amendments provide a new definition of a private company for the jurisdiction of the Panel over private companies. For this purpose a private company must have 10 or more shareholders with direct or indirect shareholding in the company and meet or exceed the financial threshold of annual turnover or asset value which shall be determined by the Minister in consultation with the Panel. It further grants the Panel the discretion to exempt any particular transaction affecting a private company in terms of section 119(6) of the Companies Act.
Companies can still make such Takeover Regulations applicable by including them in its MOI.
Section 135 – Post-Commencement Finance
A new subsection (1A) is proposed.
It provides that to the extent that there are amounts due by a company placed under business rescue to a landlord, such amounts must be regarded as post-commencement financing that must be paid to the owner or landlord of the property with preference over all secured and unsecured claims against the company.
This subsection is subject to the proviso that the amounts due to the owner of the property or the landlord do not exceed the aggregate of all disbursements and outgoings paid by the owner or landlord to third parties from the date the company is placed in business rescue proceedings. These disbursements include rates and taxes, sanitation, sewer charges, water and electricity.
Section 160 – Disputes Concerning Reservation or Registration of Company Names
A new subsection (5) is proposed.
It provides, where the company fails to change the name in terms of the administrative order of the Companies Tribunal issued in terms of subsection(3)(b)(ii) the applicant may approach the CIPC to substitute the name of the respondent with its company’s registration number followed by “Inc”, “(Pty) Ltd”, “Limited”, “SOC Limited” or “NPC”, after the expiration of the determined period (the Companies Tribunal must stipulate the date in the administration order for the company to comply with).
Other Amendments Concerning Alternative Dispute Resolution and the Companies Tribunal
The Bill amends section 166 of the Companies Act by providing that if the Tribunal has issued a certificate stating that a mediation process has failed, an affected person may refer the matter to arbitration.
Amendments to section 194 of the Companies Act adds subsection (1A) conferring certain powers on the chairperson of the Tribunal, for the appointment of the Chief Operations Officer and conferring certain responsibilities thereto.
Amendments to section 195 of the Companies Act give the Tribunal the power to conciliate, arbitrate or adjudicate administrative matters affecting the company in terms of the Companies Act as may be referred to it by the B-BBEE Commission.
Amendments to section 204 of the Companies Act by giving the Financial Reporting Standards Council the power to issue financial reporting pronouncements.